Prosper.com - 9 months later

Posted:
in AppleOutsider edited January 2014
Once upon a time I asked folks whether I should invest in Treasury Direct (government) or Prosper.com. I tried both and overtime I've really started to enjoy investing in Prosper.com and thought I would share.



I have 13 loans so far (one new bid to make the 14th loan) with an average interest rate of around 17%. I've been using Prosper.com as a sort of personal fiat money experiment to have fun creating dollars out of the air much like banks are allowed to do. Prosper allows you to reinvest or withdraw any monies you have received as payment on your loans. My goal is to have enough principle and interest repaid each month to generate one new loan by itself. I'm pretty close and currently get to generate a new $50 loan each month while adding only $20 to the account thanks to repayment of principle and interest.



On this board we have many younger folks and I would say a key advantage of registering for Prosper.com is that even if you never borrow or lend money on the site, it allows you to see the thinking of other parties with regard to finances. Financial planning and management is one of those great societal taboos that people will still read about in books but still never discuss face to face. On this site you can see people who are asking for loans and in doing so they present you with the financial facts of their lives. You get to see what sort of debt to income ratio yields what sort of interest rate. You can see how many lines of credit they have open. Many post summaries of their monthly expenses to show how the prosper loan will be able to be repaid.



It reminds me very much of when I had to generate those first resumes. You know someone has shown you the various forms but don't know the best way to combine them for you. In my case a nice book (today it would probably be a website) that had a couple thousand resume examples helped me see the thinking of others and then I could apply what I knew best for myself. It is really neat to see the financial thinking of others, both good and bad laid out there in the listings.



Of my 13 loans, I've had a few go late in terms of payments a few times. Prosper will show them as being less than 15 days late and I suppose they attempt a second debit on their account and each time the payment has come in. I started with very high interest loans and have been rolling the repayments into top grade credit loans. My oldest loans are now 10 months old out of a three year term. I'm hoping to keep reinvesting the money paid back in over the long term to watch a small sum become a significant sum.



Anyone else have any sites or resources they like to look at financially?



Nick
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Comments

  • Reply 1 of 26
    corkurkcorkurk Posts: 90member
    Wow...it's like you were reading my mind Nick! I had this same idea last night and was going to post it this morning. There have been a few threads like this in AI, but I'm always curious what people are reading on other parts of the web.



    I've spent a little bit of time at fatwallet.com, but I would love to see what other sites people read on a regular basis. The financial forums at FW have threads on real estate, the best CD rates people can dig up, best sign up bonuses, ect. ect. Lots of info on lots of topics.



    Any others?



    P.s. I've checked out Kiva and love the idea. Sometime in the next few paychecks I'm going to plunk a few bucks down on one of the loans.
  • Reply 2 of 26
    corkurkcorkurk Posts: 90member
    Just checked out the Prosper site. Looks like Kiva except that you're actually making interest on the loans instead of being simply philanthropic. Maybe after Kiva that will be my next little experiment.



    Thanks for the info!
  • Reply 3 of 26
    sdw2001sdw2001 Posts: 17,037member
    I went through Prosper's whole process of verifying ID to be a borrower and signed up to be a lender. My plan was to use my good credit to borrow money for like 7% and reloan it at like 15-17.



    Problem: There are laws per state that limit the interest reate you can be charged to borrow from prosper. In PA it's like 6%, but the way it's calculated, you actually have to request money at 4.75%. Well guess what? No one is going to loan you money for that.



    I'd still like to try Prosper, we'll see. I may sink some of my own $ into at built it slowly...we'll see. It would be better to be able to borrow 20,000 and reloan it at 10% profit though!
  • Reply 4 of 26
    backtomacbacktomac Posts: 4,579member
    Nick,



    I looked at the prosper website and I'm quite intrigued. Are you worried about the current business cycle being unfavorable for this kind of investment (ie high risk lending when economy may be softening)?
  • Reply 5 of 26
    sdw2001sdw2001 Posts: 17,037member
    Quote:
    Originally Posted by backtomac View Post


    Nick,



    I looked at the prosper website and I'm quite intrigued. Are you worried about the current business cycle being unfavorable for this kind of investment (ie high risk lending when economy may be softening)?



    Keep in mind it's small loans...or it's supposed to be. You're talking about making 100 $50.00 loans or what not. If three of them default, it really makes no difference.
  • Reply 6 of 26
    trumptmantrumptman Posts: 16,455member
    Quote:
    Originally Posted by backtomac View Post


    Nick,



    I looked at the prosper website and I'm quite intrigued. Are you worried about the current business cycle being unfavorable for this kind of investment (ie high risk lending when economy may be softening)?



    Well you have your choice to engage in high risk lending or not.







    I've been using Prosper as my own fiat money multiplier experiment. I've started with mostly high risk loans and have rolled the returned principle and interest into safer loans. I'm rolling the grade E & HR loans (23.75% interest rate into 8.25%) A loans for example.



    The point of micro-finance though is to spread the risk. As SDW notes, you aren't loaning $1000 to one person, but loaning $50 to 20 different people.



    Nick
  • Reply 7 of 26
    backtomacbacktomac Posts: 4,579member
    Thanks for replys Nick and SDW. I'm going to look into this a little further. I like the idea.
  • Reply 8 of 26
    corkurkcorkurk Posts: 90member
    Quote:
    Originally Posted by trumptman View Post


    Well you have your choice to engage in high risk lending or not.







    I've been using Prosper as my own fiat money multiplier experiment. I've started with mostly high risk loans and have rolled the returned principle and interest into safer loans. I'm rolling the grade E & HR loans (23.75% interest rate into 8.25%) A loans for example.



    The point of micro-finance though is to spread the risk. As SDW notes, you aren't loaning $1000 to one person, but loaning $50 to 20 different people.



    Nick



    Nick,



    How much of a hit are you taking on the fees, defaults ect.? It looks like Prosper charges around .5% on average to the lender. With that plus whatever defaults you've had, do you have a estimate of the actual % return on investment so far?
  • Reply 9 of 26
    trumptmantrumptman Posts: 16,455member
    I've not had any defaults. If you are a lender, it gives you a pane where you can see your lending overview. Here is mine.



    Principal loaned: \t $930.33

    Payment status: \t

    13: Current

    1: Late (<15d)

    Avg. interest rate: \t16.50%

    Principal repaid: \t$134.96

    Interest & fees paid: \t$80.65

    Service fees: \t-$2.18

    Loan value: \t$799.39



    Mine looks a bit wonky because I immediately take the repaid principal and roll it back into new loans. Those loans haven't really begun paying yet and contributing to the return in a big way. I've put $775 of my own money into Prosper.com but I have $930 worth of principal loaned out because I roll it back into new loans.



    Here is what it notes about my lending performance.



    Lending Performance

    Net income (interest + fees): \t$74.18

    Net defaults: \t$0.00

    Net gain/loss: \t$74.18



    My first loans originated in June from my first infusion of $500 so that is really about $68 worth of return on $500 of investment in less than a year. I added another $200 in December and finally have been adding $20-25 a month to "top off" the returned interest and principal each month and originate a new loan. The investment gap between June and Dec. is just my own way of letting this settle in.



    By settle in, I mean that all the lending data at Prosper.com is public, but since it was new, there wasn't much data yet.



    Now that it has some time under its belt, you can look here and see default rates for various credit grades and so forth.



    Finally Prosper allows you to join and support groups where people lend or borrow money according to particular traits, political affiliation, sexual orientation, computer choice, etc.



    One of my loans belongs to this group.



    Another belongs to this group.



    One belongs to this group.



    You don't have to belong to a group to lend to it. I go it alone for now not belonging to any group.



    Nick
  • Reply 10 of 26
    gilschgilsch Posts: 1,995member
    It's an interesting concept brought to you by the era of the internets. I was considering funding a lot of loans to spread the risk around. There will be defaults(I just noticed Trump's link to default rates duh). Ultimately I decided against it because I have other investments going on.



    I think the way Trumptman is doing it is a good way to get started in the world of investments especially if you have limited funds. However you need to think of it as a long term investment. It could be fun once you get a nice return every month in a couple of years. Passive income is nice.



    It will be interesting to see how this concept evolves especially with grouping resources.
  • Reply 11 of 26
    sdw2001sdw2001 Posts: 17,037member
    Quote:
    Originally Posted by trumptman View Post


    I've not had any defaults. If you are a lender, it gives you a pane where you can see your lending overview. Here is mine.



    Principal loaned: \t $930.33

    Payment status: \t

    13: Current

    1: Late (<15d)

    Avg. interest rate: \t16.50%

    Principal repaid: \t$134.96

    Interest & fees paid: \t$80.65

    Service fees: \t-$2.18

    Loan value: \t$799.39



    Mine looks a bit wonky because I immediately take the repaid principal and roll it back into new loans. Those loans haven't really begun paying yet and contributing to the return in a big way. I've put $775 of my own money into Prosper.com but I have $930 worth of principal loaned out because I roll it back into new loans.



    Here is what it notes about my lending performance.



    Lending Performance

    Net income (interest + fees): \t$74.18

    Net defaults: \t$0.00

    Net gain/loss: \t$74.18



    My first loans originated in June from my first infusion of $500 so that is really about $68 worth of return on $500 of investment in less than a year. I added another $200 in December and finally have been adding $20-25 a month to "top off" the returned interest and principal each month and originate a new loan. The investment gap between June and Dec. is just my own way of letting this settle in.



    By settle in, I mean that all the lending data at Prosper.com is public, but since it was new, there wasn't much data yet.



    Now that it has some time under its belt, you can look here and see default rates for various credit grades and so forth.



    Finally Prosper allows you to join and support groups where people lend or borrow money according to particular traits, political affiliation, sexual orientation, computer choice, etc.



    One of my loans belongs to this group.



    Another belongs to this group.



    One belongs to this group.



    You don't have to belong to a group to lend to it. I go it alone for now not belonging to any group.



    Nick



    I was thinking this over and came to this question: Aren't you doing it backwards? For example, who not have the majority of your own dollars invested in the safer, lower interest loans? Then, take the proceeds from those loans and put the "house money" into the high risk loans?
  • Reply 12 of 26
    Quote:
    Originally Posted by SDW2001 View Post


    I was thinking this over and came to this question: Aren't you doing it backwards? For example, who not have the majority of your own dollars invested in the safer, lower interest loans? Then, take the proceeds from those loans and put the "house money" into the high risk loans?



    Yes. That might be best.



    A final report here on Prosper.com at roughly the 17-18 month mark.



    I've decided to forgo new lending for several reasons and have begun withdrawing funds.



    I have a total of sixteen loans but it was as high as 18-19. Of the remaining sixteen, I suspect over time four of them will go to default. They have been consistently late and grow progressively more so over time.



    Here are the reasons I've decided to pull out and not continue Prosper.



    First, people have complained about the lack of attention to fraudulent borrowers by Prosper themselves. Since Prosper buys back loans when it determines the borrower was fraudulent this is a very problematic and self-serving situation.



    Second, it has become known that the ability to debit an account in order to attempt to obtain loan payments can be stopped at the request of the borrower. Prosper had advertised this as a means of helping secure repayment of the loan.



    Third, inflexible loan terms have made it harder to lend. It is three years or nothing in terms of lending, but borrowers can prepay or payoff at any time. This means your best loans earn little to no interest before they are paid off as those with great credit often don't hold the loan for more than a year.



    Finally, the late/default process itself is quite short with external collections having a lower than average cure rate. This to me says there is still too much of a disconnect between what the borrower is providing and Prosper is collecting with regards to information.



    I still believe in micro-lending. Kiva.org has done a wonderful job and I have 100% repayment rate there. I want to try micro-lending and when someone else gives it a try here in the U.S. Until then, Prosper's growing pains have made it unpalatable.



    Nick
  • Reply 13 of 26
    Quote:
    Originally Posted by trumptman View Post




    Anyone else have any sites or resources they like to look at financially?



    Nick



    I like http://clearstation.etrade.com/ as a trader looking at oversold conditions etc. from a technical vantage point.



    Fellows
  • Reply 14 of 26
    sdw2001sdw2001 Posts: 17,037member
    Quote:
    Originally Posted by trumptman View Post


    Yes. That might be best.



    A final report here on Prosper.com at roughly the 17-18 month mark.



    I've decided to forgo new lending for several reasons and have begun withdrawing funds.



    I have a total of sixteen loans but it was as high as 18-19. Of the remaining sixteen, I suspect over time four of them will go to default. They have been consistently late and grow progressively more so over time.



    Here are the reasons I've decided to pull out and not continue Prosper.



    First, people have complained about the lack of attention to fraudulent borrowers by Prosper themselves. Since Prosper buys back loans when it determines the borrower was fraudulent this is a very problematic and self-serving situation.



    Second, it has become known that the ability to debit an account in order to attempt to obtain loan payments can be stopped at the request of the borrower. Prosper had advertised this as a means of helping secure repayment of the loan.



    Third, inflexible loan terms have made it harder to lend. It is three years or nothing in terms of lending, but borrowers can prepay or payoff at any time. This means your best loans earn little to no interest before they are paid off as those with great credit often don't hold the loan for more than a year.



    Finally, the late/default process itself is quite short with external collections having a lower than average cure rate. This to me says there is still too much of a disconnect between what the borrower is providing and Prosper is collecting with regards to information.



    I still believe in micro-lending. Kiva.org has done a wonderful job and I have 100% repayment rate there. I want to try micro-lending and when someone else gives it a try here in the U.S. Until then, Prosper's growing pains have made it unpalatable.



    Nick



    I have really been thinking about getting into it, but I can't really justify it. As a money maker, it's just not going to get one there.



    If I invest $1000 at an average APR of 15%, that's going to result in principal and interest repayments of about $35 a month (3 years). Of that $35, about $13 is interest. That means for every $1000 I invest at 15%, I earn $13 a month. And, that's assuming a 100% loan repayment, which as you've pointed out is not guaranteed.



    So, to make any money, I'd really need to lend about $25,000 total. That would net me about $300 a month in interest payments if I was damn lucky. And honestly...$300 a month? That's not worth my time. I'd be better off teaching a few more private students. Also, I can stick that $25K in an FDIC insured zero risk savings account and earn $150 a month that way. Prosper doesn't look so good all of a sudden.



    My original plan, as I've stated, was to borrow $25K on prosper at about 8%, then re-loan it at 18%. I went through the whole lender/borrower verification thing, which was a pain in the ass for the latter, let me assure you. I did that only to find out that PA's rate cap for this kind of loan is 6%. So, no one was going to loan me money at 6%, clearly. Most states set limits of 20-30%, but not the good old Commonwealth.
  • Reply 15 of 26
    mydomydo Posts: 1,888member
    Quote:
    Originally Posted by SDW2001 View Post


    Keep in mind it's small loans...or it's supposed to be. You're talking about making 100 $50.00 loans or what not. If three of them default, it really makes no difference.



    Small loans will average out your risk but what if the the average risk is still too high? If 50% of the bowers default then you've lost half your money regardless of how small each loan is.
  • Reply 16 of 26
    sdw2001sdw2001 Posts: 17,037member
    Quote:
    Originally Posted by mydo View Post


    Small loans will average out your risk but what if the the average risk is still too high? If 50% of the bowers default then you've lost half your money regardless of how small each loan is.



    Yes, I agree completely. That said, their data would seem to show vastly lower default rates, even for bad credit borrowers. From what I saw the rate peaked at around 5% even for "HR" grade borrowers (high risk, lower than "D" credit).
  • Reply 17 of 26
    sdw2001sdw2001 Posts: 17,037member
    BUMP!



    Just thought I'd point out: Prosper has managed to get around the borrowing caps! PA now has a max rate of 36% as opposed to 6%. So I may be borrowing and reinvesting after all, though not until I close on my home. The mortgage folks wouldn't like that!



    Following Lending Club's lead, Prosper has opened up to borrowers in almost all states and eliminated state rate caps. All loans now have a maximum rate of 36%.



    But then I saw this:



    http://www.finextra.com/fullstory.asp?id=18331



    Hmmm.
  • Reply 18 of 26
    Hey SDW! I just wanted to say 2 things----firstly: thanx for letting me know that PA FINALLLLLLLLY is allowing prosper to charge over 6% interest. I have been searchng the entire internet for liike 2 years!!! I was totally unable to find that info. I can't believe I finally have an answer, AND the answer I want4d. I think ur idea of borrowing at 8-10%, and lending at 18% is GREAT! Secondly: I don't think u should worry about what u read re: SEC problems w/ P2P lending. How can it be a 'securities issue'???? And, if prosper is still lending millions monthly, I'm 100% certain that it is legal. What I read about the SEC problem seriously sounded ridiculous. don't worry----prosper knows what they're doing. I presently am looking for student loans for my 2 daughters going to school in LA. My credit is not great, but I am fixing it as much as possible daily. I am very much hoping to get a prosper loan. Thanx for listening. I just felt like I needed to reply. My email is: [email protected]

    Max
  • Reply 19 of 26
    What about Virgin Money? They look like they have a pretty good model for P2P loans also. Anyone use them?
  • Reply 20 of 26
    sdw2001sdw2001 Posts: 17,037member
    Is prosper back online with new lenders/loans now? The last I heard they went into "quiet period" mode while they sorted out the legal issues. It looks from their site that they are.
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